I’m a car fanatic and maybe you are one too. This post is my drive down memory lane. I go over all the cars I’ve owned in the past and present.
One of my most financially helpful, but polarizing articles is The 1/10th Rule For Car Buying Everyone Must Follow. I wrote this post to help mostly younger folks not blow their money on the most common financial destroyer. We all know that almost all cars are guaranteed to lose value.
As a young man, I used to view my Toyota Corolla Hatchback as an asset because I didn’t know better. How could a car be a liability when I could take girls out on dates, drive to William & Mary from the DC-area to get a solid education, and take a nice midnight jaunt along the Jamestown river during final exams?
Now I view my vehicle as a liability. All I see in my garage is a large heap of metal necessary to transport my family safely. I’ve got to keep feeding it money in order for it to run – gas, new tires, maintenance, tax, tickets, accidents, and insurance. I’d much rather have the money sunk in my car producing passive income for financial freedom.
For those of you curious about what it’s like to follow the 1/10th Rule For Car Buying for the past 15 years, let me give you an honest assessment as an ex-car fanatic who has owned a dozen cars in his lifetime. The journey just might save you a lot of money and bring you more happiness in the process.
A Car Fanatic’s History Of Car Ownership
I didn’t always have the car of my dreams. Here’s how it started right after college. Ever since I was in middle school I’ve been a car fanatic.
Bottled Up Desire To Splurge: 22 – 25 Years Old (1999 – 2002)
The first thing I wanted to buy after I got my first real job was a nice car. Even after working minimum wage jobs during the summers and winters in high school, I couldn’t afford to spend more than $3,000 on a vehicle.
It wasn’t until I got a raise and a promotion to join a new firm in San Francisco in 2001 that I finally had enough money to go big. Go big I did by purchasing a $75,000 Mercedes G500 SUV. Just a year earlier, the car cost $150,000 because a dealer in Santa Fe, New Mexico had exclusive import rights until Mercedes bought them out. What a great deal for half off!
I regretted my decision several months later because I was spending $720 a month to finance the vehicle. I had traded a perfectly fine 1995 Nissan Pathfinder for $10,000 to take on so much debt. I was probably only making about 2X the cost of the vehicle and felt stupid still renting a one bedroom apartment for $1,800 a month. My financial priorities were askew.
A year and a half later, I sold the G500 for a $17,000 loss because it wouldn’t fit in the garage of a condo I wanted to buy. Although this was an expensive lesson, I bought the condo for $580,000, and decided to never spend more than 10% of my income on a vehicle ever again!
2002 was the birth of the 1/10th rule for car buying. But only after I started Financial Samurai in 2009 did I put the rule in writing.
Lessons learned: Don’t buy new. The depreciation curve is too aggressive. Consider buying a 3-5 year old car instead. Further, fight the urge to buy a car before you’re 25, especially if you have school debt. Take public transportation, rideshare, or ride with friends. After at least three years of work, you’ll appreciate the value of a dollar more and hopefully shun expensive vehicles.
Came To A Compromise. 26 – 27 Years Old (2003 – 2004)
As a car fanatic, I went from a brand new $75,000 Mercedes G500 to a seven-year-old Honda Civic sedan worth $7,500 after I bought the condo.
I loved the Honda Civic so much because it reminded me of my childhood, but I was embarrassed to drive it around as third-year Associate in investment banking. Investment bankers are supposed to wear tailor-made suits, drive fancy cars, and eat dry age steak dinners.
I never wanted to talk about cars with anyone since I never wanted to tell anybody what car I drove. It was a pretty macho environment on the trading floor where guys would constantly make fun of each other for whatever reason.
One close car fanatic friend drove a BMW X5 and another friend drove a Mercedes E-Class Coupe. Both made less than I did. Their splurges made me want to splurge again, but I still felt stupid from my G500 purchase, so I held strong.
As a compromise, I sold the Honda Civic a year later on Craigslist and bought a used 1997 BMW M3 for $14,000. It was black on black with aftermarket wheels and tinted windows. It was my dream car as a car fanatic at the time.
Ah, finally! I felt like I could be proud of my car again. I was driving a lot during this time period because I was going to UC Berkeley part-time for my MBA. Classes were in Berkeley one week and in the South Bay every other week. It felt good to drive a sports car to and from San Francisco.
As a 27-year-old who had just gotten promoted, I felt I deserved a car that matched my position at the firm. Having a BMW was good enough to make me feel like I had a nice car again, even though it cost less than 10% of my annual gross income.
Lessons learned: It’s natural to want to own a nice car in your 20s to help boost your stature. The thing is, nobody really cares or expects you to be rich or successful at that age. It’s much more impressive if you drive a beater in your 20s because it shows you have more important priorities. Your bonus or promotion will get chopped if your boss sees you driving a luxury vehicle. You can still get plenty of status points by owning a used luxury brand for less money.
Getting On A Roll. 28 – 35 Years Old (2005 – 2012)
By the time I turned 28, I was feeling pretty confident about my career progression. I had six years of work experience under my belt, got my MBA, and was one year in as a Vice President. No longer did I need a nice car to give me an ego boost. I focused more on utility.
Instead of wanting a nicer car to further boost my ego, I wanted to go the complete other way and start driving a beater again! A coincidence perhaps, but the 1997 BMW M3 also started having some transmission problems. After stretching to buy a single family house in the Marina district, I decided it was best to drive a second-hand car with four-wheel drive capabilities to get up to our place in Squaw Valley, Lake Tahoe.
In 2005, I found the perfect vehicle: a 2000 Land Rover Discovery II that I named Moose. I bought it from a woman who was relocating to Amsterdam for her consulting job. Because her company was paying for all moving expenses, she really didn’t care about maximizing her sale price. I bought the vehicle, which had been under warranty, for $8,000 cash. Score!
It felt awesome to be getting paid 2X more as a VP, living in a nicer property while driving a car 42% cheaper than my previous one. Some would say I was overly frugal, but I loved Moose, and wrote about him for the first five years of Financial Samurai’s life. He confidently drove us through mega storms and never quit on us.
Lesson learned: Do your best to “make it” or be on the right track by 30 with your wealth and with your career. With more money, you’ll start getting hooked on the power of compound returns and passive income. Further, owning a home trumps owning a car for lifestyle and wealth creation since the average person only drives their car for one hour a day. Homeownership is one of the easiest paths to wealth.
Not Caring Anymore. 35 Years Old
Once I engineered my layoff in 2012, I no longer cared about my image. There was no office to drive to. There were no clients to pick up for an event. It was liberating! Moose, my 14-year-old SUV was finally traded in for $3,000 in 2014 because it had five warning lights flashing on the dashboard. It couldn’t pass smog inspection and I didn’t want to spend at least $1,000 to fix it.
I drove Rhino, my new Honda Fit, with pride for three years. Such an economical city car felt perfect for blending into my new middle-class neighborhood after I bought a fixer in 2014. I didn’t want to attract attention by driving a fancy car.
It felt wonderful being invisible. Driving a regular car also felt great because I put the $235/month lease payment on the business. Yes, a lease is not the most economical way to go, but the lease gave us the convenience of returning the car to the dealer as we were thinking of traveling abroad.
Felt Great Driving An Economical Car
After three years, I returned the Honda Fit back to the dealership and plunked down a wad of cash for a 2015 Tata Motors SUV in December 2016. It had only 11,200 miles on it. It also went through a 200 point inspection at an Audi dealer because that’s where the owner originally planned to sell the vehicle for much more.
Despite the much higher cost, I surprisingly didn’t feel a lick of guilt or buyer’s remorse. I was turning 40 years old and had spent 13 years owning cars worth less than 10% of my annual gross income.
I had invested 100% of the money saved in the stock market and real estate market during this time period. Further, I now had a baby to protect at all costs. I wouldn’t be able to live with myself if something were to happen to him in an accident with the Honda Fit.
I love the Tata and plan to drive it until it stops working or until we go on our international adventure. But I’m kind of sad I no longer love cars now that I can afford a nice variety. It was so fun to salivate in magazines or online about all the latest vehicles.
Lessons learned: Once you achieve financial independence, you’re OK with driving something very boring or something really flashy. It doesn’t really matter because you really don’t care what other people think anymore. With a family, your main priorities for the vehicle are safety and reliability. If you can also find a vehicle that looks good and is fun to drive, all the better.
Driving My Ideal Car At 45
Now that I’m a father of two young children, I finally bought both my favorite car and one of the safest cars on the road. In December 2016, I bought a 2015 Range Rover Sport HSE! I’ve been driving Moose II ever since.
So far, the Range Rover Sport has been reliable. I did change the fan during a oil change and that’s it. The Range Rover is black on black with tinted windows and 22″ rims. I love it. Even though I’m older now, I’m still a car fanatic. Perhaps the next car will be a Porsche 911.
But I plan to drive my Range Rover Sport for 10 years until December 2026. 10 years is the ideal length of time to own a car. After 10 years, it’s recommended to take advantage of new safety features, fuel efficiency features, and more.
Here are some of the safest cars and SUVs you can buy today. As a parent, I am 100% focused on car safety nowadays.
Don’t Waste Money On A Car You Can’t Afford
Even the most economical cars now have fantastic features that were once reserved for luxury vehicles. For example, my Honda Fit had power windows, power locks, Bluetooth, a backup camera, a side view camera, a couple USB chargers, and paddle shifters.
By the time you reach middle-age and beyond, you won’t care as much about material things any longer. You also won’t feel ashamed owning nicer things because you earned the right to splurge. Some of you might even go the complete other way and start simplifying your life for the sake of freedom.
Even if you are a car fanatic, stick to spending 1/10th your gross income on a car or less. You will be so happy to have saved and invested all that money in the meantime. The best reason to drive a cheap old car is better mental health!
Cars give you the greatest joy when they are reliable and don’t stress you out financially. Not only will the 1/10th rule prevent you from ever feeling buyer’s remorse, if you want a nicer vehicle, you’ll be motivated to earn more money.
For my next car in 2026, I’m most likely going to get an electric car. By then, the charging grid will be more built out. Further, car batteries will go even farther.
Buy The Best Personal Finance Book
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You can buy a hard copy of BTNT on Amazon right here, which has a great sale. It is a #1 New Release and #1 Bestseller. I’m positive the book will provide you at least 100X more value than it costs! The book is based off 25+ years of experience working in finance and writing about finance.
Vehicle Insurance Recommendation
The best place to get affordable car insurance is with Allstate. With Allstate, as a car fanatic, you’re in good hands. Getting a quote is free and easy. Make sure you have the best auto insurance possible to protect yourself and your family.
Every year, there are hundreds of thousands of accidents on the road. You need great auto insurance to protect your finances as well.
Am I the only person who had to look up what Tata motors is, then try and figure out if they are really sold in the US then have to search through all the cooments to find out it’s a Land Rover?
But my real complaint is I wanted to get a midlife crisis car. Instead I end up getting a bunch of financial wisdom.
Ruining my crisis.
Gus Levy says
I have not visited this site for awhile, was brought back by a Google result about moving to Hawaii which I have been thinking of…daily for the past 15 years.
Anyway, for Men, most of us know that the vehicle that they drive is the most visible signal to notify others where they dwell on the Big Totem Pole of Life. It gives the millisecond general feedback as to how much a dude makes, how old he is, how active he is, etc…whether we like it or not, it’s the first road marker – without actually having to speak with them – on the path to judging someone.
The car is therefore an important thing in the aggregate. Most people do claim to hate to be judged, but if most people know that they will be judged, well, they want to put on a good superficial face rather than a bad one, ceteris paribus. Alas, society never gives up a good thing for the price of a bad thing – the result being that most cars are generally clustered in price but then the “cool, sexy, sporty” ones are priced at a factor to those plebeian models. If a dude wants to signal to the other dudes and the sexy ladies out there that they are the Ish, then it will cost them a good monthly payment not including the big annual insurance payment.
The problem is that the resulting race becomes one large Pyrrhic battle: For most dudes, to win the Car Game, means that they have to sacrifice financial stability today and in the future because the darn German automakers keep on adding extra letters and numbers to the top models that become significantly more expensive with each digit included. You may have been the cool kid with the Porsche Carrera in the office parking spot but then Chad basically turned yours into a Toyota by bringing in his Porsche GT3.
As for me, as an INTJ, I understood the logic and reality of all this but intrinsically understood early in life even as a kid that flashy cars were simply not going to be important to me. There were years where I made enough to be able to buy that GT3 but it really would not been my “style”. Even today, as most of my affluent neighbors roll in their Range Rovers and Teslas, I get a kick out of rolling around town in my dented, dirt covered, manual transmission ’01 Jeep Wrangler that hisses, squeels and whines whenever I switch gears on it. The Jeep is my flashy car – the other one is a Hyundai Sonata hybrid that I bot new for $20k…love that car too.
My Aunt sent me this article. I am 23 years old. I have a 2016 Toyota Corolla I owe 18k, which is more than half of my income. The car only KBB for 11k. Monthly payments are around 380 a month. The only benefit is it has 0% interest rate. With the negative equity how would you recommend I reach the 1/10th rule? Or should I continue to own this car and pay it off?
Great advice that I always give to others. Growing up in a car culture family resulted in me wasting thousands on impractical cars and cars well outside the 1/10th rule. I’ve been happily driving beaters for over a decade now and my bank account thanks me. Now, like you, I’m faced with balancing cost versus the time and safety that a newer car provides. I’m still searching for that sweet spot. Until then my 2005 Volvo XC90 provides the utility and safety. Fingers crossed the reliability holds up. Great advice and article.
Brian O'Bannon says
I’m all for saving and investing…..
Yet, at the same time, remember…. you can’t take it with you and you only live once.
I have a 1989 Subaru with 300k miles and rust. My wife hates it. I don’ t care. It’s too cheap to get rid of. I also own my high school car. A 1971 Mustang Fastback which I plan to make it my daily driver again after 20 years of storage. It needs some work but I do it all myself.
And I have my Giant EBike. Best form of exercise while running errands and not breaking a sweat. I’ve got all this and more on my YouTube channel of “Ob1n”.
I agree with the premise of your post though believe it’s more applicable to those living in urban centres with public transit readily available. I drive an early 2000’s Toyota and have spent the past few years considering my next car purchase. Though I grew up in an urban environment and neither of my parents owned a vehicle when I was growing up, I now live in a small to medium sized midwestern town (pop. 200,000) with atrocious public transit. I plan on spending a maximum of 25% of my gross on next purchase due to the following:
1) I work in sales and drive 5,000 to 10,000 miles annually for work which is reimbursed and which also means I would like the next vehicle to have a few more creature comforts due to increased time spent in vehicle.
2) I have an infant and a second on the way. Safety is worth spending up.
3) After size considerations for growing family and safety, the next and final consideration in my purchase will be reliability. My current car has done well for 16 years. The goal is for the next one to live even longer.
While I’m in the Midwest, I spend a good bit of time in the Bay Area. If you live in SFO or OAK your guidance is on point. However, if you live in Salinas or Tracy and commute in daily, creature comfort that may increase the budget above 10% is certainly justified if you’re spending 4+ hours per day in your vehicle.
Financial Samurai says
I hear you on public transportation. It is everybody’s complaint, no matter which city you are in actually. The Muni never runs on time here in SF, but there is cheap ridesharing now.
I also agree on safety… no price can be put on safety. So for the safety of a baby/toddler, get the safest vehicle you can and own it for as long as possible.
Hope you can write off all those miles against your income!
No car payments is so easy to get used to. Purchased a new 2001 Toyota Tundra in 2000 for 28K (first new car purchase and about 1/2 of salary at the time). Paid it off in 5 years. In 2005 decided the only thing I would ever pay interest on again is the mortgage (currently 2.75%). Purchased a 2008 Honda Accord in 2008 (second new car purchase) on an 18 month zero percent interest credit card that fortunately converted to 0% for life when new credit card disclosure laws were implemented during the recession. Have been making minimum payments ever since. With zero interest there has been zero incentive to pay more than the minimum payment. The remaining balance is currently less than $500 in 2018 and I will keep paying the $35 mo they mi imum until paid off. Still drive both vehicles. I typically drive vehicles until they get so outdated they become embarrassing to drive. Starting to get there with the Tundra. Because of this, I don’t think the 1/10 rule applies to me. I mean, look how the 2000 (1/2) Tundra transaction turned out in hindsight. I feel like I could easily go 1/3 right now (70-80K) and easily justify it because I will drive the vehicle for 17 years+. No interest in purchasing another 28K cookie cutter. Hmm…
Diana P McGinley says
Generally agree, we buy 2-4 year old cars with a large enough down payments so we can pay the loan off in 36-42 mos. Then we keep the cars for 10+ years. Only NEW car we ever bought was a 1999 Mazda Protege with a $14K loan (about 33% of our income at the time) at 1.99% interest. Paid it off in 3 years with less than $300 paid in interest. Kept it for FOURTEEN years – best bang for our buck ever in a car. Ironically, at the same time we were looking at replacement vehicles, my husband and son were hit in it (by a 20 yr old in his parents’ pretty new $30K ish SUV, no one was injured). Insurance company totalled the Mazda out for $1K more than I had calculated its trade-in value to be.
Say we had only kept the car for 10 years after paying it off in 3, which is how we’ve operated for our other vehicles. How do you calculate all these factors into the 1/10 of income for a car purchase rule? And, my family of 5 fits fine into our Odyssey but can’t fit into our Civic. Bigger vehicles cost more, even in the lower end trim lines – yet another factor like safety, gas mileage, maintenance costs (reliability), etc. that might affect that 1/10 rule.
A friend of mine bought a motor bike (Royal Enfield) in 2001 for about Rs.55000 (in India). Another one invested the same Rs 55,000 in shares (at Rs 17.50 per share) of Eicher Motors, the company that makes Enfield bikes.
The first friend now has an old, rugged bike.
And the second friend’s investment is worth Rs 5 crore (Rs.50 million) now. That is about 900x times in 17 years !
Of course, the fun and experience of using that bike in those many years – probably was priceless (subjective though).
Note: Both friends are imaginary.
I’m 45 and still a hopeless car guy- read all the magazines, salivate over 5-6 models at any given time, etc. Based on your post, I think the mistake I made was not going all out in my 20s to get it out of my system! Bought a 30k regular 3 series instead of the M3 I lusted after when i was 27.
Great choice on the RRS- I can’t help checking them out when one drives by- there’s something very satisfying about the design (just the right amount of boxiness mixed with sleekness). Also love the reverse-trolling references to “Tata motors”. I considered getting one, but once again, “cheaped out” and spent 38k on a leftover 2017 bmw X3. In addition to the RRS- my current “dream cars” include the BMW m2, Tesla Model S, Dodge Charger SRT, and Porsche 911 so I’m all over the map!
John Mcbroom says
Nice article sam.. bought 2014 mercedez suv 50k.. 4.5% of my annual income.. i enjoy the safety, as well as the comfort and sitting higher than i would in a sedan. At 50 yo would not want to downgrade
Home Life Hero says
Two things –
1. I love the audacity of the 1/10 rule. It’s just infuriating enough to make people want to run the numbers.
2. I love that I’m seeing for the Acura MDX for this article, which leases, apparently, for $416 a month. It has a starting price of $44,600 – so on the 1/10 rule , a FS reader would need to make $446,000 annually to afford this vehicle!
I drive a 2004 Toyota Matrix (hatchback version of the Corolla). It’s well within the 1/10 rule and I plan to keep it until I get out of debt, and maybe longer.
I’m a huge fan of the Matrix and it’s twin, the Pontiac Vibe. The Vibe depreciates even faster, making it even more affordable – Toyota quality with Pontiac depreciation!
Wm Olendorf says
After driving a 2002 mini-cooper into ground, I decided that a nice and within my means now to purchase a 2015 Mercedes SLK250 for the fun of a exotic 2 seater that fits an old guy like myself. The cost was the same as a ford new so why not. It 30000 on the speedo and was certified by mb. Not a mark or mar.
Sometimes you need something fun.
I really enjoyed this post, and thought that I would share my recent car buying experience. For reference, I am a college student who makes less than $5000/summer.
2 years ago, I bought a 1998 Saturn SL2 with 130k miles for $1000. I only had to do very minor repairs and regular maintenance in that time, plus it got 30+ mpg! Now that car has 150k miles on it and I just sold it for $900! When you factor in the resale value, I definitely followed the 1/10th rule with that car.
I replaced the Saturn with a 2005 Subaru Legacy Wagon with 177k miles for $1850. I originally planned to spend $1500 or less and get a newer Saturn, but when I finally found this car, I convinced myself that the extra expense up front and over time would be worth it if I could keep it for the next 3 years or more. The problem is that I found out the car will need about $1000 in repairs in the next year, with some more imminent than that.
For me, buying and selling used cars became my primary focus over the past 2-3 weeks. As a result, I may have lost sight of the 1/10th rule in hopes that I wouldn’t have to go through this process again in a year or so. I also found that I got extremely lucky with the overall cost of my first car, and was consistently disappointed when every Saturn I looked at had more mechanical problems, had more rust (too much rust underneath is why I got rid of my Saturn), or was out of my price range. My fear was that I would buy another cheap Saturn, drive it for a year or so, find rust holes in the frame, and be forced to sell it.
What you think about the opportunity cost of time spent shopping for cars in comparison to how long you can reasonably drive them?
Todd Whitley says
The 2005 Subaru Legacy is an AWESOME car. If it’s a turbo though, do some research. I lost my 2005 turbo Outback to a blown turbo.
Infinite Sabbatical says
Your history of car ownership is so brilliantly documented and the lessons learned are great. To this date I still drive my 16 years old (the one and only car I’ve ever bought) even though my income has 7x’ed in the last ten years. In fact my colleagues including all my direct reports drive much fancier cars than I do, but I am proud to be the most invisible when it comes to materialistic possessions. Really enjoyed all the insights you shared, keep up the great work!
No Free Lunch says
I live in the Houston, and saw thousands of cars totaled from the flood. Many of those people had luxury cars they couldn’t afford. Many were pleased to quickly get a check for a brand new replacement car from the insurance company. Now, however they have higher insurance premiums to deal which, that many can’t afford, on the car they couldn’t afford. (I see an insurance claim as a deferred payment plan for the amount of the claim.) My car was purchased used and has so many miles, with such low replacement value that it is not worth insuring (still have the required liability). My premiums didn’t go up after the flood, because I am not part of the wacky “pool” of luxury car owners in a part of the country that floods frequently.
My car registration cost 18% more this year in the SF Bay Area than last year.
Same car, just one year older.
The state taxes opportunistically.
Lots of drivers in CA, lots of people that can’t _not_ register their car — all so easy to raise their taxes via registration fees. Sitting ducks.
Check your cost of car registration in CA for your 2019 tags vs your 2018 tags.
That was a great Auto-biography you did Sam. Very impressed that early on with the exception of the Mercedes G-wagon you realized where value lies in autos.
I have had my share of cars throughout the years as well, growing up in a Mercedes family I had the baby benz versions for several years.
Now where I am at financially I had no problem buying a new Tesla Model S in 2015 when I upgraded the previous new car I bought and drove for 11 years (Mercedes C320, 04).
Early on peer pressure really does play a role with what you want to drive. Lawyers, doctors, investment bankers all are expected to drive something fancy or they appear to be not successful.
Erik Graper says
Mere mortal here that makes less than 100k/yr. (But, I did dip out of MBA school to chase life instead of money for 12 years working as a tandem hangliding instructor, so behind in the investing, but ahead in experience;-)) Driving ’03 VW tdi w/ 240k 42mpg, worth about 1/10 yearly takehome, but bought at about 1/4 8 years ago.
I agree completely about the principle of 1/10 in the past, but today, I’m planning to drop 1/2 or so to buy a tesla b/c, as you say, we should all care about our next generation that is so very important. Waiting several years to get out of a diesel or gasser and into an electric may not be the wisest course for our future, seeing how much transportation contributes to global emissions. Probably not too many with the utilitarianism mindset on here, but something to consider anyway. Just wish the electric revolution started a decade back. Also, some recalcs should be in order considering fuel and maint. costs.
Love your articles!! Thanks.